PF: Credit


Credit allows people to obtain the use of money that they do not have. To obtain credit, a prospective borrower must convince someone else, usually a lender, to provide a loan in return for the borrower’s promise to pay the money back, plus an additional charge called interest. People obtain loans to buy cars, homes, and major appliances, to improve their homes, to pay for college education, and so forth.

Credit decisions, whether to borrow money, and for what reasons, can be difficult. Like all difficult decisions, credit decisions involve examining the advantages and disadvantages facing the individual making the choice. The hard part, of course, is figuring out whether the advantages of using credit outweigh the disadvantages.

There are many advantages to using credit. Credit can help people acquire assets. Assets are goods or services that usually retain or increase their value. Ordinarily, a home or post-secondary education is considered an asset. Credit also can help people lead happier lives by enabling them to obtain the goods and services they wish to have now while paying for them in the future. And credit can help people in an emergency.

There are also disadvantages to using credit. Some people make the mistakes of using too much credit in relation to their income; they may then incur heavy burdens of debt from which it is difficult to recover. Many new college graduates, for example, spend a lot of the income from their first jobs repaying large credit card debts they have rolled up while in college. As they spend a great deal of their current income paying for previous purchases, they are left with less money to buy things they would like to have in the present. And if they miss payments or default on loans altogether, they may face serious negative consequences, including the inability to get credit at a later time when it would otherwise make sense to borrow money for a major purchase.



Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: